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It is a good idea to get a list of all the supplies and equipment currently being used to operate the park and have it included in the purchase. My hope is that this article has provided you with some perspective from an actual first time buyer and that it will be helpful to you in some way. Be advised that mobile home park due diligence can take a long time. As such, it is important buyers give themselves plenty of time to perform a proper due diligence. This is a plan I eventually implemented after I purchased the park.
In some states, especially those where licenses are required, the state does an annual inspection and produces a report with notices of any violations. It is good to see these violations and be sure that they have been corrected. When doing your due diligence, there are some things that you just cannot change, and the risk will be too high to proceed with these deals. Other fixes may simply prove to be too costly.
Mobile Home Park Due Diligence
Mobile home park due diligence is an essential step to mobile home park investing. A few years ago I purchased a mobile home park for $36,000. Below is what I did in terms of due diligence. Does the park have adequate equipment to operate? If the current owner has a pickup, tractor, mower, make sure to negotiate for this as it will come in handy in the future and you don't want to have to start buying all of this the month you take over.
On google map's "street view" application, you can even see the park from the street, just like you were there driving it. You take apart all of the parts of a mobile home park, and you verify the condition and cost to each one. If you have not done this before, you definitely need a resource to point out all the components so you don't miss one.
Real Estate Investing Due Diligence Checklist: Mobile Home Park
It occurred to me that one way to address my concern was to bring a home into the park to see if I could rent it or sell it, while still in the diligence period. If I could not rent or sell the home, then I would back out of the deal. On the other hand, if I was successful at renting or selling the home, then this would validate my plan.
In short, I would focus most of my effort on the items that had the biggest financial risk. The top two items I identified at the time were housing demand and utility costs. But, I’ll touch on other elements of mobile home park due diligence later in this article.
DEALS & UPDATES
You want to be sure you are buying what you think you are buying. Are some of your mobile homes over the property line. Are there fences or sheds over the property lines. With a new owner, the adjoining land owners may use this time to enforce some of these issues. Check the legal description with the survey and with your contract and warranty deed. With electric service, you will want to check whether the electric is above ground or below ground.
However, I must note that it didn’t feel right to ask the residents to pay an additional $50 or so to cover their water bill. Instead I lowered the lot rent from $300 to $255 when I transferred the water bill responsibility to the residents. The seller and park manager investigated my concerns and were able to locate and fix the water leaks. One good thing is that all the leaks were easy fixes.
Pre-Due Diligence In The Mobile Home Park Industry
But it seems to have everything one can need to relax on the beach or enjoy water sports. There is a bicycle path around the whole lake and marked hiking trail. Although the lake is intensively commercially used you can find there a beautiful nature and even a natural reservation.
This can happen from fire, tornado, hurricane, etc. Invest in real estate and never run out of money! Buy, Rehab, Rent, Refinance, Repeat is the five-part BRRRR real estate investing strategy that makes financial freedom more attainable than ever. In this book, author and investor David Greene shares the exact systems he used to scale his real estate business from buying two houses per year to buying two houses per month using BRRRR. But more importantly you are looking for those problems that you may not be able to fix or that will be very expensive to fix. These types of issues usually deal with the size of the lots, reputation, problems in local market, flood plains, drainage problems, bad configuration of lots, water, sewer, electric, and gas line problems.
Visit the planning department to see if there are any new parks that are going to be built as well as the location of any vacant land zoned for mobile home parks development. Good school districts are often a great place to own parks. Many times these districts are in wealthy areas of the city and less affluent people are often looking for affordable housing in these areas to allow their children to be in these good school districts. Whether the park is on city water or wells, you need to check out the distribution systems. Find out what the lines are made of, whether there are signs of water leaks and whether the water pressure is adequate to all sections of the park. One of the most important items that you will need to have is a good purchase contract that has been reviewed by your attorney.
In my situation, the mobile home park I was about to purchase was located in a small town. Going against the advice of experienced investors meant I needed to be sure housing demand wasn’t a problem. One thing I had in my favor was that the park I was looking to invest in is the only mobile home park in this small town. If you are going to buy the park and in the process buy homes to rent or sell, you might want to place some teaser ads in the local newspapers to see what type of response you get. If you don't get any calls it may be a good indication of the market and the feasibility of filling the park up.
If you have not completed your diligence in the required amount of time, say thirty days, it is sometimes possible to get the seller to give you an extension of time. If that is the case, the best way to get the extension is to meet with the seller and show him all of the work you have performed, so that he knows that your request is legitimate. When you propose such an extension to the seller, he is normally concerned that you are just wasting his time, and that you have no intention of buying it, or that you lack the money. It's your job to convince him that you can close, and will close, if he just gives you a few more days to complete your diligence.
One important thing to understand about mobile home park investing is that sometimes lot rent includes some utilities (i.e. water and sewer). Other times, lot rent does not include any utilities. Find out if the park is required to be licensed and if so that it has the required license.
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